Sections 575 to 578
REGISTRATION
OF COMPANIES UNDER PART IX
Madras
High Court
Companies Act
[2005] 57 SCL 362
(Mad.)
High Court of Madras
v.
L.K.S. Gold Palace
R. Balasubramanian, J.
Application No. 376 of
2004
and C.S. No. 934 of
2003
March 6, 2004
Conversion
of a firm into a private limited company, under Part IX of the Companies Act,
1956, statutorily vests all assets of such erstwhile firm into that private
limited company under section 575 of Act without involving any transfer
Section 575 of the Companies Act, 1956, read
with section 19 of the Copyright Act, 1957 - Companies authorised to register
under this Act - Vesting of property on registration - Whether inasmuch as
plaintiff-company had come to be incorporated under Part IX, after complying
with all relevant requirements and registered as such, there was a statutory
vesting under section 575 of all assets of erstwhile partnership company into
private limited company registered under Act, meaning thereby that no transfer
was involved - Held, yes - Whether there being, thus, neither transferor nor
transferee, whose presence alone would mean that there was a transfer, no
transfer of copyright which was originally with firm in favour of company was
involved requiring any written assignment deed under section 19 of Copyright
Act - Held, yes
Facts
The respondent-plaintiff-company filed an
injunction suit for restraining the defendant-firm from infringing its copyright
over a trademark and a logo. The plaint proceeded on the basis that the said
copyright currently belonged to it, and prior to that, its
predecessors-in-interest started the business with the said copyright; that it
was last used by a firm started by its managing director; that in the year
2001, the said firm was converted into a private limited company and that,
therefore, the proprietary rights in the said trade-mark and logo stood vested
with it. However, the defendant filed an application seeking rejection of the
plaint on the grounds that the said copyright was registered in the name of a
partnership firm whereas the suit was filed by a private limited company which
was a separate legal entity; and that there was no valid assignment of the same
by the firm in favour of plaintiff-company as contemplated by section 19 of the
Copyright Act, in the absence of which, the plaintiff could not maintain its
suit.
Held
The
partnership firm was reconstituted by a document. Eight partners constituted
the said reconstituted firm. The certificate of incorporation of the
plaintiff-company showed that it was incorporated in the year 2001. The capital
account of each of the partners mentioned in the deed had been transferred to
the plaintiff-company. The memorandum of association of the company provided
that its object was to acquire and take over, as a going concern, the
partnership firm along with its assets and liabilities on such terms and
conditions as may be mutually agreed upon; that the liability of the members
was limited; that seven out of the eight partners had each been allotted 10,000
shares each, except one partner who was allotted 20,000 shares; that the
minimum paid up capital of the company was to be Rs. 1 lakh or such higher
amount as may be prescribed; that no invitation should be issued to the public
to subscribe for any shares in or debentures of the company; and that the share
capital of the company and the directors of the company were the family members
alone. Therefore, it was clear that the private limited company was to be
limited only to its members and not to outsiders. [Para 3]
Under part IX of the Act, a partnership firm
can be registered as a company. Joint stock company is defined under section
566. Amongst the features of a joint stock company, it should have permanent
paid up or nominal share capital; the said share capital must be a fixed
amount; it should be divided into shares of fixed amount and it should have
been formed on the principle of having the company only for its members,
whether a shareholder or a stock holder and no-one else. The features noted in
the memorandum and articles of association of the company definitely brought
the plaintiff-company within the meaning of a joint stock company. When the
plaintiff-company was incorporated, all the requirements of law as found in
Part IX had been complied with. Merely because, in the future, the company was
permitted to raise the share capital, especially when invitation to public
stood ruled out, would not, alter the character of the company from joint stock
company into any other company. Inasmuch as the plaintiff-company had come to
be incorporated under part IX,
after complying with all the requirements in regard thereto and registered as
such, there was a statutory vesting under section 575 of all the assets of the
erstwhile partnership company into the private limited company registered under
the Act. That means, no transfer was involved. In other words, there was
neither a transferor nor a transferee, the presence of both would mean that
there was a transfer. Therefore, on the settled position in law, no transfer of
the copyright, which was originally with the firm, in favour of the company was
involved. Thus, there was no question of any written assignment deed under section
19 of the Copyright Act. Consequently, the ground put forward to reject the
plaint had to fall to the ground and the instant application was to be
dismissed accordingly. [Para 4]
Cases
referred to
Vania Silk Mills (P.) Ltd. v. CIT [1991] 191
ITR 647/59 Taxman 3 (SC) (para 4), CGT v. Motor Sales [1990] 186 ITR 419 (All.)
(para 4) and Vali Pattabhirama Rao v. Sri Ramanuja Ginning & Rice Factory
(P.) Ltd. AIR 1984 AP 176 (para 4).
Order
1. This is an
application taken out by the defendants in the suit to reject the plaint. The
suit is filed seeking an order of injunction restraining the defendants, etc.,
from infringing the copy right in the registered artistic work of the
plaintiff’s logo ‘L.K.S.’ by distributing, printing or caused to be printed,
the impugned artistic logo of the defendants namely, ‘L.K.S./GP’ and for other
reliefs. The plaint proceeds on the basis that the copy right referred to above
belongs to the plaintiff, which is a private limited company as on date; prior
to that, the predecessors in interest of the Directors of the plaintiff company
started the business with the said copy right way back in the year 1925; it was
last used by a partnership firm started by the Managing Director of the
plaintiff company in the name of ‘L.K.S. Gold House’ in the year 1987 at T.
Nagar; in the year 2001, the partnership firm was converted into a private
limited company under the provisions of the Companies Act and therefore the
proprietary rights in the trade mark namely, ‘L.K.S. Gold House’ and its logo stand
vested with the plaintiff. Written statement is yet to be filed. Rejection of
the plaint is asked for on the following grounds :
“The said copy right has been registered in the
name of ‘L.K.S. Gold House’, which is a partnership firm; the suit is filed by
a private limited company, which is a separate legal entity; therefore it is
not entitled to agitate any legal rights that accrued to the partnership firm
namely, ‘L.K.S. Gold House’ or its partners; there is no valid assignment of
the said copy right by the partnership firm in favour of the plaintiff -
private limited company; there is no such assignment deed on record; section 19
of the Copyrights Act states that a copy right has to be assigned by a document
in writing and therefore, in the absence of such an assignment in writing, the
plaintiff cannot maintain the suit, as there is no cause of action.”
2. Arguments
have been advanced by Mr. S.A. Rajan learned counsel for the plaintiff stating
that, as the partnership firm owning the copy right had been converted into a
private limited company and the said firm having been taken over as a going
concern by the private limited company, no transfer of the copyright is
involved. He relies upon part IX of the Companies Act consisting of sections
565 to 581 to contend that there is a Statutory vesting in favour of the
company of all the assets of the partnership firm and therefore section 19 of
the Copyright Act is not attracted. Mrs. Nalini Chidambaram learned senior
counsel appearing for the defendants would submit that from the materials
available on record, it cannot be said that the plaintiff’s company is a joint
stock company, in which event alone, the provisions contained in part IX of the
Companies Act would apply.
3. In
the light of the arguments advanced, I applied my mind to the materials
available on record. The partnership firm of ‘L.K.S. Gold House’ was
re-constituted by a document dated 1-4-1999. Eight partners constituted the
said re-constituted firm. The certificate of incorporation of the plaintiff
company shows that it was incorporated in the year 2001. The partners capital
account produced in the paper book shows that the capital account of each of
the partner mentioned in the deed had been transferred to ‘L.K.S. Gold House
Pvt. Ltd.’ (plaintiff company) by an entry dated 11-7-2001. The Memorandum of
Association of the company shows that its object was to acquire and take over,
as a going concern, the partnership firm referred to earlier along with its
assets and liabilities on such terms and conditions as may be mutually agreed
upon. It also provides that the liability of the members is limited and that
the share capital of the company is Rs. 1 crore and 50 lakhs divided into 15
lakhs equity shares of Rs. 10 each. From a perusal of the Memorandum of
Association, it is seen that seven out of the eight partners have each been
allotted 10,000 shares each, except one partner by name A.S. Sulaiman, who was
allotted 20,000 shares. The Articles of Association shows that the minimum paid
up capital of the company shall be Rs. 1 lakh or such higher amount as may be
prescribed. It also shows that no invitation shall be issued to the public to
subscribe for any shares in or debentures of the company. It also reiterates
the share capital of the company as referred to earlier and the Directors of
the company are the family members alone. Therefore, it is clear that this
private limited company is limited only to its members and not to outsiders.
4. There
is no dispute that under part IX of the Companies Act, a partnership firm can
be registered as a company. Joint Stock Company is defined under section 566 of
the Act. Among the features of a joint stock company, it should have permanent
paid up or nominal share capital; the said share capital must be a fixed
amount; it should be divided into shares of fixed amount and it should have
been formed on the principle of having the company only for its members,
whether a shareholder or a stock holder and no-one else. The features noted in
the memorandum and Articles of Association of this company earlier in this
order definitely bring the plaintiff company into a joint stock company. It
cannot be disputed that when the plaintiff company was incorporated, all the
requirements of law as found in part IX of the Companies Act have been complied
with. Merely because, in the future, the company is permitted to raise the
share capital, especially when invitation to pubic stands ruled out, would not,
in my opinion, alter the character of the company from joint stock company into
any other company. Inasmuch as, the plaintiff company has come to be
incorporated under part IX of the Companies Act, after complying with all the
requirements in regard thereto and registered as such, there is a Statutory
vesting under section 575 of the Act of all the assets of the erstwhile
partnership company into the private limited company registered under this Act.
This means, no transfer is involved. In other words, there is neither a
transferor nor a transferee, the presence of both alone would mean that there
is a transfer. In Vania Silk Mills (P.) Ltd. v. CIT [1991] 191 ITR 6471 (SC) it was held that for the purpose of transfer, the existence of
transferor and transferee at the same time is an essential condition. In CGT v.
Motor Sales [1990] 186 ITR 419 (All.) it was held that “the partners of the
firm, who became shareholders of the company, were allotted shares of the face
value of Rs. 8 lakhs and in view of the fact that the entire assets of the firm
were taken over by the company as a going concern, the shares allotted would
encompass all the assets of the company”. In Vali Pattabhirama Rao v. Sri
Ramanuja Ginning & Rice Factory (P.) Ltd. AIR 1984 AP 176 it was held that
“once a partnership was converted into a registered company, the property of
partnership vests in the company on registration and that no separate
conveyance is necessary”. Therefore, on the settled position in law as referred
to above, I hold that no transfer of the copyright, which was originally with
the firm, in favour of the company is involved. Therefore there is no question
of any written assignment deed under section 19 of the Copyrights Act.
Consequently, I find that the ground put forward to reject the plaint, falls to
the ground and this application is accordingly dismissed. No costs.
[2003]
48 SCL 1 (Bom.)
v.
R.M.
Lodha and D.B. Bhosale, JJ.
Writ
Petition Nos. 1443 of 1995,
786
and 2229 of 1996
and
2492 of 2000
November
1, 2002
Section 565 of the Companies Act, 1956, read
with section 17, of the Multi-State Cooperative Societies Act, 1984 -
Unregistered Companies - Companies capable of being registered - Petitioner
challenged incorporation of respondent No. 10 of a multi-State Cooperative
Society running business as a co-operative bank, into a company under Part IX
of Act, on ground, inter alia, that conversion would affect interest of
employees and shareholders of respondent No. 10 - RBI had conveyed ‘in
principle’ approval - Registrar of Companies granted certificate of
incorporation, accordingly, so that assets and liabilities also stood vested in
respondent No.11 - RBI granted licence to respondent No.11 to carry on banking
business - Consequently, shareholders were asked to deliver their share
certificates for necessary endorsement - Respondent No.10 had, thus, ceased to
exist as a Society under Multi-State Cooperative Societies Act - Whether RBI’s
impugned approval was for purpose of deposits being made by one body corporate
with another body corporate and investment being made by one body corporate
with another body corporate, and said expression ‘body corporate’ would not
mean company registered under Part IX of Act, petitioner’s submission that
respondent No. 10 did not qualify for registration under Part IX could not be
accepted - Held, yes - Whether respondent No. 10 satisfied all conditions of
section 566 and, accordingly, it was a ‘joint stock company’ within meaning of
section 566 on date of application to Registrar of Companies - Held, yes -
Whether once a company is born, only method to get it extinguished is not by
assailing its incorporation, since certificate of incorporation is conclusive,
but by resorting to provisions of Act which provide for winding up of companies
and, therefore, petitioner could not be said to have no remedy - Held, yes -
Whether in above circumstances, existence of Respondent No. 10-society stood
dissolved on its conversion under Part IX as a joint stock company, and since
respondent No.11-bank had made remarkable growth and progress after its
conversion in 1995 and certain equities had been created in favour of third
parties after conversion, it would not be proper, just and equitable to grant
any relief to petitioner - Held, yes
Words & phrases - ‘Company’ as occurring
in section 566 of the Companies Act, 1956
Respondent No. 10-bank was a scheduled urban
cooperative bank carrying on the business of banking under the provisions of
the Reserve Bank of India Act. In 1994, it proposed its conversion and
registration as a joint stock (banking) company (respondent no. 11) under the
provisions of Part IX. Accordingly, a scheme of conversion was prepared and the
same was passed in its special annual general meeting. The RBI gave ‘in
principle’ approval to the respondent No. 10 to convert itself into a
joint-stock banking company. Later a certificate of incorporation was also
issued to the respondent No. 10 by the Registrar of Companies.
On writ petition, petitioner inter alia,
opposed conversion of respondent No. 10-bank into joint stock banking company
on ground that conversion would affect the interest of the employees and the
shareholders.
According to the impugned letter, issued by
the RBI ‘in principle’ approval to the conversion of co-operative bank to the
banking company was for the purpose of deposits being made by one body
corporate with another body corporate and the investment being made by one body
corporate with another body corporate. The expression ‘body corporate’ is used
in sections 370 and 372 in particular in a different context and it certainly
would not mean the company registered under Part IX of the Act. Part IX does
not make any reference to body corporate as contemplated under sections 370 and
372. As a matter of fact, reference to company in Part IX does not refer to
body corporate as defined under section 2(7). Therefore, submission of
petitioner that Cooperative Bank did not qualify for registration under Part IX
since body corporate expressly excludes co-operative society from its
definition under section 2(7) was not acceptable. [Para 15]
For the registration under Part IX, it must be
a company not registered under the Act, or in any of the earlier Companies
Acts. Respondent No. 11 was a joint stock company within the meaning of section
566, which, on a plain reading, requires that it has a permanent paid-up or
nominal share capital of fixed amount, that capital is divided into shares of
fixed amount and it is formed on the principle of having formed for its members
and holders of those shares and no other persons. The respondent No. 10
satisfied all the above conditions and, accordingly, was a joint stock company
within the meaning of section 566, on the date of application to the Registrar
of Companies for the purpose of incorporation under Part IX. The
expression ‘company’ in Part IX is used
in the sense of a group, assembly or AOPs which has been incorporated under the
Act of Parliament or otherwise duly constituted according to law and consisting
of seven or more members. The word ‘company’ occurring in section 566 is not a
company registered under the Companies Act. It may include within its purview a
co-operative society registered under the Societies Act of the Multi-State Act.
[Para 20]
It is true that there is no express enabling
provision under the Multi-State Act to allow conversion of co-operative bank
into a banking company under Part IX. However, there is no express provision
prohibiting such conversion if all the requirements contemplated under Part IX
are complied with. In view of section 575, upon incorporation of respondent
No.11 as a company under the Act, all property, movable and immovable,
including actionable claims belonging to or vested in respondent No. 10-bank at
the date of registration passed to and vested in respondent No.11. By virtue of
sections 576 and 577 the existing liabilities of respondent No. 10 were also
expressly saved and all the legal proceedings taken by or against it had
continued by and against respondent No.11. [Para 22]
Moreover, the position of law is very clear
that once a company is born, the only method to get it extinguished is not by
assailing its incorporation, since the certificate of incorporation is
conclusive, but by resorting to the provisions of the Act which provide for
winding up of companies. The petitioner could not, therefore, be said to have
no remedy. [Para 23]
The plain intendment of the Multi-State Act is
that when the whole of the assets or liabilities of Multi-State Co-operative
Societies are transferred to another entity, the registration of that
Multi-State Society stands cancelled and the society shall be deemed to have
been ipso facto dissolved and shall
cease to exist as corporate body. That principle could be taken recourse to, to
hold that the existence of respondent No.10-society stood dissolved on its
conversion under Part IX as joint stock banking company. The Union of India had
also informed that consequent upon the registration of respondent No. 11 as a
joint stock banking company by the name of the Development Credit Bank, the
Development Co-operative Bank (respondent No. 10) had ceased to exist as a
society under the Multi-State Act, from the date of registration under the Act.
Thus, the authorities under the provisions
of the Multi-State Act had treated the registration of respondent No.
10-bank as cancelled and it ceased to exist as a society under the Multi-State
Act. Respondent Nos. 10 and 11 could not be said to have committed any
illegality. Even if it be assumed that there was some irregularity in
conversion of respondent No. 10 to respondent No. 11, it was not a suitable
case for interference under extraordinary jurisdiction in larger public
interest, in view of remarkable growth of respondent No. 11 during all these
years and the interest of the shareholders; therefore, the submission of the
petitioner that respondent No. 10 was still in existence inasmuch as it had not
been deregistered or wound up had no merit. [Para 24]
In the result, the instant writ petition was
to be dismissed. [Para 26]
T.V. Krishna v. Andhra Prabha (P.) Ltd. [1960]
30 Comp. Cas. 437 (AP) (para 16), Vali Pattabhirama Rao v. Sri Ramanuja Ginning
& Rice Factory (P.) Ltd. [1986] 60 Comp. Cas. 568 (AP) (para 20) and State
of Maharashtra v. Prabhu [1994] 2 SCC 481 (para 25).
Salim Nanji for the Petitioner. Suraj M. Saha, R.S. Desai, I.M. Chagla, Virag
Tulzapurker, C.O. Singh, Varghese Joseph, D.A. Dube, Shyam Diwan, Yeash
Kapadia, Jamshed Mistry, K.G. Munshi, J.P. Ranga and H.R. Gandhi for the Respondent.
(1) Writ Petition No. 1443 of 1995.
1. In this
group of writ petitions, the principal question that arises for our
consideration is as to whether the Development Co-operative Bank Ltd.
(respondent No. 10) initially registered under the Maharashtra Co-operative
Societies Act, 1960 (for short, ‘the Societies Act’), and which is deemed to be
registered under the Multi-State Co-operative Societies Act, 1984 (for short
‘the Multi-State Act’), could be converted into a joint stock (banking) company
under the provisions of Part IX of the Companies Act, 1956 (for short, ‘the
Companies Act’).
2. The
petitioner, in all the four writ petitions, is common. The facts giving rise to
these writ petitions are similar and the issues involved are also common, hence
all the writ petitions are being disposed of by this common judgment.
3. The
principal question that we require to decide in these writ petitions is mainly
raised in Writ Petition No. 1443 of 1995 and our decision in this writ petition
will decide the fate of other writ petitions also, hence we propose to deal
with the said writ petition in detail.
4. The petitioner—Salim Akbarali Nanji appeared
in person and efficiently argued all writ petitions at length.
5. The factual matrix giving rise to the first
writ petition (Writ Petition No. 1443 of 1995) reveals as follows :
(a) Initially, this writ petition was filed by three petitioners,
viz., the Development Co-operative Bank Employees Union through its Gene-ral Secretary,
Shri Azim Akbarali Charania and Shri Salim Akbarali Nanji as petitioner Nos. 1,
2 and 3. Petitioner Nos. 1 and 2, however, were transposed as respondent Nos.
12 and 13 respectively by order of this court. Original petitioner No. 3 who
will be hereinafter referred to as petitioner, alone contested present writ
petition.
(b) Respondent Nos. 1 and 2 are the Union of India and State of
Maharashtra respectively. Respondent No. 3 is a statutory body registered under
the Reserve Bank of India Act, 1934 (for short the ‘RBI Act’), which is having
powers, inter alia, of issuing licences to banks and have overall supervision
over the said banks. Respondent No.4 is the Registrar functioning under the
Multi-State Act who is empowered under section 8 to issue certificate of
registration under the said Act. Respondent No. 5 is the Registrar of Companies
appointed under the Companies Act and who is empowered to issue certificate of
incorporation to a company. Respondent Nos. 6 and 7 are authorities functioning
under the provisions of the Societies Act.
(c) The Ismallia Primary Credit Society and Masalawala Primary
Credit Society were two independent primary co-operative credit societies which
were managed by the Ismallia community. They were registered under the Bombay
Co-operative Societies Act, 1925, which was subsequently replaced by the
Societies Act, 1960. These two credit societies attained the status of
cooperative banks, viz., Ismail Co-operative Bank Ltd. and the Masalawala
Co-operative Bank Ltd. in 1951 and 1984-85 respectively. On 30th June, 1981,
both these co-operative banks were amalgamated under section 17 of the
Societies Act on scheme of amalgamation. The amalgamated bank was known as
Development Co-operative Bank Ltd. (respondent No.10).
(d) The Multi-State Act, came into force on 16-9-1985, and as a
result of which respondent No. 10 was deemed to be registered under the
provisions of the said Act as the area of its operation was extended to
Maharashtra and Andhra Pradesh. Respondent No.11-Bank is the Development Credit
Bank Ltd. - a joint stock (banking) company registered under the Companies Act
and has been converted from respondent No.10-Co-operative bank.
(e) The petitioner was a member/shareholder of respondent No.
10-bank and is now a shareholder of respondent No. 11-banking company.
(f) It is the case of the petitioner that when he came to know
that respondent No. 10 had an intention of converting itself into a joint stock
banking company, he addressed a letter to respondent No. 3 expressing therein
that conversion would affect the interest of the employees and shareholders of
respondent No.10.
(g) On 17-1-1995, respondent No. 10 despatched a notice dated
9-1-1995, to its shareholders and convened a special general meeting on
28-1-1995, to consider the conversion of respondent No.10-bank registered under
the Multi-State Act into a joint stock banking company under Part IX of the
Companies Act.
(h) According to the petitioner the period of notice was
extremely short and the meeting was conducted a high-handed manner and the
resolution was passed by a show of hands in the meeting held on 28-1-1995, by
which the general body decided to convert respondent No.10-bank into a joint
stock banking company (respondent No.11).
(i) Respondent No. 11 immediately in February 1995, filed with
the Registrar of Companies (respondent No. 5) Form Nos. 37, 40 and 41 of the
Companies (Central Government’s) General Rules, 1966, along with the resolution
passed at the special general meeting for its registration as a banking
company.
(j) Before we proceed further, we may note that the petitioner
had filed a dispute before the co-operative court (respondent No.8) challenging
the notice dated 9-1-1995 by which a special general meeting was convened to
pass the aforesaid resolution. The co-operative court by its order dated
27-1-1995, in Dispute No. CC1/95 of 1995 had restrained respondent No. 10 from
adopting the resolution mentioned in the notice dated 9-1-1995. Respondent No.
10 preferred an appeal against the aforesaid order dated 27-1-1995, before the
co-operative appellate court (respondent No.9) being Appeal No. 38 of 1995. The
co-operative appellate court by its order dated 28-1-1995, allowed respondent
No. 10 to hold a special general meeting but it was made clear that the
resolution, if any, passed in the said meeting dated 28-1-1995, would be
subject to further orders of respondent No. 9, the appellate court.
Accordingly, in the special general meeting, members of respondent No. 10
passed the resolution by which respondent No. 10 was resolved to be converted
into a banking company. The appeal which was pending before the co-operative
appellate court was thereafter decided by respondent No.9 on 10-3-1995, and by
its order it directed the co-operative court (respondent No.8) to decide the
dispute on the merits within a period of two months from the date of the
aforesaid order. It was also made clear that the implementation and execution
of the resolution passed in the special general meeting would be subject to
final decision of Dispute No. CC1/95 of 1994 pending before the co-operative
court.
(k) Respondent No.10 after passing of the resolution issued a
public notice on 31-5-1995, in a local newspaper dated 1-6-1995, thereby giving
notice to all shareholders, depositors, creditors, customers and constituents
that the conversion of respondent No.10-Development Co-operative Bank into a
joint stock banking company (respondent No.11) was effective from close of
business on 31-5-1995, and it would become operative on opening of business on
1-6-1995.
(l) It may be further noted that the Reserve Bank of
India-respondent No.3 (for short, ‘the RBI’) by letter dated 2-1-1995, had
conveyed their ‘in principle’ approval to the Development Co-operative Bank
Ltd. (respondent No. 10) to convert itself into a joint stock banking company
subject to the terms and conditions as set out in the annexure to that letter.
Respondent No.10-bank was also informed that it might approach the Reserve Bank
of India for a banking licence under section 22 of the Banking Regulation Act,
1949 (for short, ‘the Banking Regulation Act’), after all legal formalities for
conversion of the Development Co-operative Bank Ltd. were complied with.
(m) It appears that the Joint Secretary, Ministry of Law
(Department of Company Affairs) informed by his letter dated 26-5-1995, to the
Regional Director of Registrar of Companies that there should be no objection
to the registration of the Development Co-operative Bank Ltd. as a company
under Part IX of the Companies Act, 1956. Accordingly, in response to the
application made to the Registrar of Companies in Form Nos. 37, 40 and 41 of
the Companies (Central Government’s) General Rules and Forms, 1956, the
certificate of incorporation bearing No. 11-89008 of 1995, dated 31-5-1995, was
issued by respondent No.5. As a consequence of issuance of the certificate
under Part IX of the Companies Act, the Development Co-operative Bank Ltd.
(respondent No. 10) stood converted and incorporated as a joint stock banking
company under Part IX of the Companies Act, 1956. Resultantly, the assets and
liabilities of respondent No.10 also stood vested in respondent No.11.
(n) The Reserve Bank of India also in exercise of powers
conferred under section 22(1) of the Banking Regulation Act, 1949, granted a
licence in favour of respondent No.11 to carry on banking business in India
subject to the conditions mentioned in the office letter dated 31-5-1995.
(o) Respondent No. 11 immediately thereafter issued a circular to
all its branches informing them about conversion of the co-operative bank into
a joint stock banking company and also took further steps which were necessary
to inform all others concerned.
(p) The Union of India (respondent No.1) issued Notification No.
OBD BR 127/16-05-00/94-95, dated 31-5-1995, and deleted respondent No. 10 from
the Second Schedule, as per section 42(6)(b)(iii) of the Reserve Bank of India
Act. The Union of India thereafter on 1-6-1995, issued another notification at
the behest of the Reserve Bank of India for inclusion of respondent No.11-bank
in the Second Schedule as per section 42(6)(a) of the Reserve Bank of India
Act.
(q) As a consequence of the aforesaid developments, respondent
No.11 on 26-6-1995, issued a letter to all its shareholders to deliver their
share certificate issued by respondent No. 10 for endorsement that those are
now shares of respondent No. 11.
(r) This may also be noted that the Divisional Joint Registrar,
Mumbai Division, a delegate of the Central Registrar under section 45 of the
Multi-State Act issued a show-cause notice on 29-6-1995, to respondent No. 10
seeking an explanation as to why management of the bank should not be taken
over. The bank preferred a revision application before the Joint Secretary to
the Government of India against the said show-cause notice under section 92 of
the Multi-State Act. These proceedings, however, were concluded by order dated
18-1-1996, passed by the Secretary of India remanding the matter to the Joint
Registrar of the Co-operative Societies, Bombay Division. The whole issue,
however, was challenged by way of Petition No. 327 of 1996 in the Delhi High
Court and has been concluded on 24-5-2001.
6. It is in
this background, the petitioner has filed the writ petition bearing No. 1443 of
1995, challenging the legality and propriety of the certificate of
incorporation dated 31-5-1995, issued by respondent No. 5 (exhibit J), letter
of ‘in principle’ approval dated 2-1-1995, issued by the Reserve Bank of India
(exhibit M), notification dated 1-6-1995, granted by respondent No.3 under
clause (a) of sub-section (6) of section 42 of the Reserve Bank of India Act
(exhibit N) and the letter dated 26-6-1995, issued by respondent No.11
informing conversion of respondent No. 10 to all its shareholders (ext. O). The
petitioner has also sought direction to respondent No. 3 to withdraw and/or
cancel the permission granted by respondent No.3 by the aforesaid letter
(ext.M). Notification (ext.N) and further direction to respondent No.5 to
withdraw the certificate (ext.J) and the letter (ext. O).
7. After
filing of the writ petition (No. 1443 of 1995), Ministry of Agriculture,
Government of India, by notification dated 31-8-1995, in exercise of powers
under sub-section (2) of section 99 of
the Multi-State Act, exempted respondent No. 10-bank from the applicability of
the provisions of section 102(1) of the said Act and in view thereof issued
letter dated 7-9-1995, to respondent No. 11 informing that consequent upon its
registration as a joint stock banking company, the Development Co-operative
Bank Ltd. (respondent No.10) had ceased to exist as a society under the
Multi-State Act from the date of registration under the Companies Act, 1956. In
view of this development, the petitioner amended the writ petition and
challenged the said notification dated 30-8-1995 (ext.S), and the letter dated
7-9-1995 (Ext.I).
8. By
order dated 8-8-1995, rule came to be issued in the present writ petition. In
so far as interim relief is concerned, this court made following observations,
in paragraphs 11 to 16 which read, thus :
“Hence, prima
facie, it appears that the company and the co-operative society are different
entities. At this stage it would be difficult to accept the contention that the
co-operative society can be converted into a company by resorting to the
provisions of section 565(b) of the Companies Act. However, this requires
detailed consideration.
In view of the
aforesaid discussions and submissions made by learned counsel, the matter
requires admission.
Hence, rule.
Learned counsel
for the petitioners has vehemently submitted that interim stay as prayed for be
granted, otherwise the petitioners would suffer irreparable loss and that the
entire society would be converted into a company which cannot be undone
subsequently. As against this, learned counsel for the bank submitted that at
present the court may not grant any interim relief as prayed for because
proceedings are pending before the co-operative court as well as with the Joint
Registrar, Central Government, who is hearing the interim application.
He further
submitted that the co-operative society at present is registered as a company.
The dispute is pending before the co-operative court at Bombay and in appeal
filed by the Development Co-operative Bank, the appellate authority has
directed the learned judge to decide this dispute on merits within a period of
two months from the date of the order. The said order was passed on 10-3-1995.
Considering
the fact that the dispute is pending before the co-operative court at Bombay
and the matter is pending before the Joint Registrar, Central Government, at
present no interim relief need be granted. However, the aforesaid authorities
are directed to dispose of the pending proceedings on remits at the earliest
and, in any case, on or before 10-10-1995.”
9. It appears
that in pursuance of the direction given in paragraph 15, the dispute pending
before the co-operative court was disposed of and ultimately culminated in the
judgment and order dated 16-10-1996, passed by the co-operative appellate court
which is a subject-matter in Writ Petition No. 2229 of 1996. In so far as the
matter pending before the Joint Registrar, Central Government is concerned, as
stated earlier, it had culminated in the order of remand and the whole issue
has now been concluded before the Delhi High Court.
10. The
main contesting respondent No. 11 controverted the case set up by the
petitioner by filing five different affidavits from time to time. In short, it
is stated in the affidavits filed by respondent No. 11 that it has been
properly and lawfully converted from a co-operative banking society, previously
deemed to be registered under the Multi-State Act, to the Development Credit
Bank Ltd., a company duly registered under the Companies Act, vide certificate
of incorporation bearing No. 89008 of 1995, dated 31-5-1995, issued by the
Registrar of Companies (respondent No. 5). It is further stated that upon
incorporation and registration of respondent No.11-bank, the Reserve Bank of
India has issued on 31-5-1995, the licence bearing No. BUN/59 to carry on
banking business under section 22 of the Banking Regulation Act. The Reserve
Bank of India, vide Gazette notification dated 1-6-1995, directed inclusion of
respondent No. 11-bank in the Second Schedule to the Reserve Bank of India Act
in pursuance of clause (a) of sub-section (6) of section 42. Respondent No.11
has further defended that the certificate of incorporation is conclusive and
final evidence as to the proper incorporation and conversion of the Development
Co-operative Bank Ltd. into a banking company and now it is not open for the
petitioner to challenge the validity of the said certificate of incorporation.
The affidavit of respondent No.11 further avers that the writ petition ought to
be dismissed on the ground of delay and laches. It has also been stated that
the petitioner is a shareholder of respondent No.11-bank and he has attended
five annual general meetings held on 30-9-1996, 30-9-1997, 30-9-1998, 30-9-1999
and 30-9-2000, and by that estoppel from challenging conversion of the
Development Co-operative Bank Ltd. to a banking company.
11. The
Reserve Bank of India filed in reply the affidavit of Smt. Sudha Damodar,
Deputy General Manager of their Department of Banking Operations and
Development. The stand taken by respondent No. 3 is that they are vested with
duties and powers for the purpose of supervision and control of the banking
system in India among other general functions usually associated with central
banking. The Banking Regulation Act, 1949, contemplates monitoring the affairs
of banking companies by the third respondent which also exercise control over
the management and conduct of the banking company. The affidavit further states
that section 22 of the Banking Regulation Act mandates that no company shall
carry on banking business unless it holds a licence issued in this behalf by
the Reserve Bank of India and in view thereof, in the present case, they did
not go into the merits of the conversion of respondent No.10 co-operative
society into respondent No.11-banking company. The Reserve Bank of India
accepted the decision of respondent Nos. 4 and 5 as legal and valid and
proceeded on that basis to consider the grant of a licence to carry on a
banking business. It has been firmly stated by the Reserve Bank of India that
it granted licence to respondent No.11 only after satisfying that respondent
No.10 had complied with all legal formalities of its conversion.
12. Insofar
as other respondents are concerned, they have not filed any reply affidavits to
the writ petition. However, except respondent No. 13, all other respondents
have supported respondent No. 11.
13. We
heard the petitioner - Shri Salim Akbarali Nanji in person, Mr. Chagla, learned
senior counsel for respondent No.11, Mr. Tulzapurkar, learned counsel for
respondent No.3, Mr. C.U. Singh learned counsel for respondent No. 12 and Mr.
R.S. Desai, ‘A’ Panel counsel for the State of Maharashtra for respondent Nos.
1 and 2 at length, perused the writ petitions and annexures thereto, affidavits
filed by the respondents and went through the relevant provisions of various
Acts referred to by the petitioner and the learned senior counsel and counsel
appearing for the parties. In order to avoid repetition, we intend to refer to
the submissions made by the petitioner, learned senior counsel and learned
counsel appearing for the parties while dealing with the issues raised in the
writ petition at the appropriate stage.
14. Before
we advert to the principal issue raised in the instant writ petitions as to
whether conversion of a co-operative bank registered under the Multi-State Act,
into a banking company under Part IX of the Companies Act, is permissible in
law we would like to examine the contention of the petitioner that the
registration of respondent No.1-bank itself is illegal and void. Mr. Chagla,
learned senior counsel submitted that even if any irregularity in incorporation
of respondent No.11-bank was committed, the certificate of incorporation dated
31-5-1995, issued by respondent No. 5 is conclusive evidence that all
requirements of the Act have been complied with in respect of registration and
matters precedent and incidental thereto.
15. According
to the petitioner, the Central Registrar, the Registrar of Companies and the
Reserve Bank of India, by misconstruing and misapplying the provisions of the
Multi-State Act and the Companies Act have illegally allowed respondent
No.11-bank to be registered as a company and carry on banking business. The
petitioner took us through various provisions of the Multi-State Act and the
Companies Act and submitted that the provisions of the said Act are contrary,
inconsistent and incongruous with each other and in any case both the
enactments cannot go together. To appreciate the arguments advanced by the
parties and to find out whether incorporation of the Development Credit Bank
Ltd. (respondent No.11) is illegal or void/we would like to examine the
legality of the steps taken by respondent Nos. 10 and 11 from time to time in
obtaining registration under Part IX of the Companies Act and licence under the
Reserve Bank of India Act :
(a) Respondent No.10 came to be registered as a co-operative
society on 30-6-1981, under the provisions of the Societies Act. The
Multi-State Act came into force with effect from 16-9-1985. At that time
respondent No. 10-bank was carrying on its business in the State of Maharashtra
and Andhra Pradesh and, therefore, the Multi-State Act became applicable to it.
Consequently under section 103 read with section 2(a) of the Multi-State Act,
respondent No.10 was deemed to be registered under the Multi-State Act.
(b) Respondent No.10-bank was a scheduled urban co-operative bank
carrying on the business of banking under the provisions of the Reserve Bank of
India Act and the Banking Regulation Act. Some time in 1994 respondent
No.10-bank proposed its conversion and registration as a joint stock (banking)
company under the provisions of Part IX of the Companies Act. Accordingly, a
scheme of conversion was prepared.
(c) Respondent No. 10-bank filed an application before the
Reserve Bank of India containing project report and details about its net worth
seeking its approval for proposed conversion.
(d) The Reserve Bank of India after an elaborate examination of
the matter enjoined upon it under section 22 of the Banking Regulation Act
decided to grant its approval in principle to the conversion of co-operative
bank into the Development Credit Bank Ltd. under the provisions of the
Companies Act.
(e) A Perusal of section 22 of the Banking Regulation Act clearly
shows that no company would be able to carry on banking business in India
unless it held a licence issued in that behalf by the Reserve Bank of India and
any such licence could be issued subject to such conditions as the Reserve Bank
of India may think fit to impose.
(f) Respondent No.10 also obtained approval to its conversion
from the Government of India, Ministry of Finance vide letter dated 9-12-1994.
(g) The impugned letter dated 2-1-1995, issued by the Reserve
Bank of India and the ‘in principle’ approval to the conversion of co-operative
bank to the banking company reads, thus : under the Companies Act is for the
purpose of deposits being made by one body corporate with another body
corporate and investment being made by one body corporate with another body
corporate. The expression “body corporate” used in the Companies Act, in
sections 370 and 372 in particular would make it abundantly clear that, it is
used in a different context and it certainly would not mean the company registered
under Part IX of the Companies Act. In so far as Part IX of the Companies Act
is concerned, under which respondent No.11-bank has been incorporated, it does
not make any reference to body corporate as contemplated under sections 370 and
372 of the Companies Act. As a matter of fact, reference to company in Part IX
does not refer to body corporate as defined under section 2(7) of the Companies
Act. We, therefore, do not agree with the submission of petitioner that
Development Co-operative Bank did not qualify for registration under Part IX
since body corporate expressly excludes co-operative society from its
definition under section 2(7) of the Companies Act.
16. Coming
now to the petitioner’s leading submission that section 565 of the Companies
Act refers to “company” inasmuch as Development Co-operative Bank (respondent
No.10) is not a company and is not authorised to register under Part IX of the
Companies Act. In other words, there is no provision of law allowing the
Development Co-operative Bank to be converted into a company. The petitioner
further submitted that respondent No. 10 has made no effort to wind up or
dissolve its existence under the Multi-State Act and in view thereof, its
existence as the multi-State society is still a legal entity under the
Societies Act and/or the Multi-State Act since it has not been wound up. In
other words, under the Societies Act or the Multi-State Act there is no
provision of whatsoever nature of converting a society into a joint stock
company likewise also in the Companies Act. The existence of respondent No. 10
and its registration has not been extirpated or determined and despite that
respondent No.11-company has come into existence to which certificate of
incorporation has also been granted by respondent No.5. The petitioner further submitted that unless
and until the existence of respondent No. 10 ceases to exist respondent No.11
which has come into existence on 31-5-1995, cannot take over or step into the
shoes of respondent No. 10. On the other hand, Mr. Chagla, learned senior
counsel for respondent No.11 submitted that the word “company” is used in Part
IX of the Companies Act in the sense a group or association of persons and it
also denotes a co-operative society, such as respondent No.10. He placed reliance
on the notification dated 31-8-1995, issued by the Ministry of Agriculture,
Government of India and submitted that in view of the aforesaid notification,
the provisions of the Companies Act would apply to a multi-State co-operative
society inasmuch as the provisions of Part IX of the Companies Act could be
taken recourse to for issuance of certificate of incorporation in favour of
respondent No.11. Mr. Chagla, learned senior counsel further submitted that a
certificate of incorporation granted by respondent No.5 is conclusive evidence
and that all the requisites prior to incorporation have been complied with and
the court cannot go behind the said certificate of incorporation. Mr. Chagla,
further submitted that once a company is born, the only method to get it
extinguished is winding up under the provisions of the Companies Act. In
support of his submission, he relied upon T.V. Krishna v. Andhra Prabha (P.)
Ltd. [1960] 30 Comp. Cas. 437 (AP). The petitioner as well as Mr. Chagla in
support of their contentions invited our attention to various provisions of the
Multi-State Act and the Companies Act as well.
17. The
petitioner submitted that section 5(2) of the Multi-State Act which envisages
its object for the promotion of the economic and social betterment of its
members through mutual aid in accordance with the co-operative principles.
Section 22 of the Multi-State Act, in the petitioner’s submission, speaks about
the principle of one man one vote which would get jeopardized if the society is
converted as banking company under the Companies Act. He further submitted that
when the society is registered under the Multi-State Act, the Central Registrar
issues a certificate of registration, which according to section 8 of the
Multi-State Act is conclusive evidence that the society is duly registered
under the Act. According to the petitioner, there is no restriction under the
provisions of the Companies Act as we find under section 24 of the Multi-State
Act which provides a restriction on the holding of shares. Similarly, there is
no specific power given to the board of directors of taking any decision
relating to conversion of the co-operative bank into a company in the
Multi-State Act. Section 37 of the Multi-State Act, according to the
petitioner, restricts the holding of an office of a president/chairman or
vice-president/vice-chairman on the board of a multi-State co-operative society
for two consecutive terms, whether full or part. Section 77 of the Multi-State
Act provides for winding up of a multi-State society. Simi-larly, the
petitioner also invited our attention to several other provisions of the
Multi-State Act and the rules and submitted that the fundamental structure of
the co-operative principles would get defeated if the co-operative society is registered
under the Companies Act. The petitioner also invited our attention to the
provisions of the Companies Act. Section 565 of the Companies Act, in the
petitioner’s submission, envisages that any company consisting of seven or more
members duly constituted according to law, may at any time register under the
Companies Act as an unlimited company or as a company limited by shares or as a
company limited by guarantee. According to the petitioner, nowhere in section
565 including exceptions or provisos to the said section 565 it is contemplated
that a registered society can be converted into banking company under this
section. The said section exclusively dealt with a company formed under any Act
of Parliament or Indian Law. In short, he submitted that Part IX of the
existing Companies Act deals with registration of a company and not conversion
of a non-company. The petitioner further submitted that section 566 of the
Companies Act defines joint stock company and nowhere contemplates that an
incorporated society can be converted into a company or that a joint stock
company includes a co-operative society or otherwise. In substance, the
petitioner submitted that the provisions of the Multi-State Act and that of the
Companies Act are contrary, inconsistent and incongruous with each other and,
therefore, the alleged conversion alters the basic co-operative structure of a
co-operative bank.
18. Mr.
Chagla, learned senior counsel on the other hand, after inviting our attention
to several provisions of the Multi-State Act, submitted that there is no
requirement of an express enabling provisions under the multi-State
co-operative society to allow conversion of co-operative bank into a banking
company under Part IX of the Companies Act. According to him, the provisions
enabling conversion are contained in the Companies Act.
19. In
order to appreciate the submission of Mr. Chagla, learned senior counsel for
respondent No.1 that the provisions enabling conversion are contained in the Companies
Act, it would be advantageous to refer to a few provisions of the said Act.
Section 565 of the Companies Act speaks about the companies capable of being
registered. Clause (b) of sub-section (1) of section 565 provides that any
company formed before or after the commencement of the Companies Act in
pursuance of any Act of Parliament other than the Companies Act or of any other
Indian law or Letters Patent in force in India, or being otherwise duly
constituted according to law, and consisting of seven or more members may at
any time register under this Act as an unlimited company. Proviso (1) to
sub-section (1) of section 565 also excludes a company registered under the
Indian Companies Act, 1882 (6 of 1882), or under the Indian Companies Act, 1913.
Section 565 and section 566 which are relevant for our purpose read thus :
“565 Companies
capable of being registered.—(1) With the exceptions and subject to the
provisions contained in this section,—
(a) any company consisting of
seven or more members, which was in existence on the first day of May, 1882,
including any company registered under Act No. 19 of 1857 and Act No. 7 of 1860
or either of them or under any laws or law in force in a Part B State,
corresponding to those Acts or either of them ; and
(b) any company formed after
the date aforesaid, whether before or after the commencement of this Act, in
pursuance of any Act of Parliament other than this Act or of any other Indian
law (including a law in force in a Part B State), or of any Act of Parliament
of the United Kingdom or Letters Patent in force in India, or being otherwise
duly constituted according to law, and consisting of seven or more members ;
may at any time register under this Act as an unlimited company, or as a
company limited by shares, or as a company limited by guarantee; and the
registration shall not be invalid by reason only that it has taken place with a
view to the company’s being wound up :
Provided that—
(i) a company registered under
the Indian Companies Act, 1882 (6 of 1882), or under the Indian Companies Act,
1913 (7 of 1913), shall not register in pursuance of this section ;
(ii) a company having the
liability of its members limited by any Act of Parliament other than this Act
or by any other Indian law (including a law in force in a Part B State), or by
any Act of Parliament of the United Kingdom or Letters Patent in force in
India, and not being a joint stock company as defined in section 566, shall not
register in pursuance of this section ;
(iii) a company having the liability
of its members limited by any Act of Parliament other than this Act or by any
other Indian Law (including a law in force in a Part B State), or any Act of
Parliament of the United Kingdom or Letters Patent in force in India, shall not
register in pursuance of this section as an unlimited company or as a company
limited by guarantee ;
(iv) a company that is not a
joint stock company as defined in section 566 shall not register in pursuance
of this section as a company limited by shares ;
(v) a company shall not
register in pursuance of this section without the assent of a majority of such
of its members as are present in person, or where proxies are allowed, by
proxy, at a general meeting summoned for the purpose ;
** ** **
(2) In computing any majority required for
the purposes of sub-section (1) when a poll is demanded, regard shall be had to
the number of votes to which each member is entitled according to the
regulations of the company.
566.
Definition of ‘joint-stock company’.—(1) For the purposes of this part, so far
as it relates to the registration of companies as companies limited by shares,
a joint-stock company means a company having a permanent paid up or nominal
share capital of fixed amount divided into shares, also of fixed amount, or
held and transferable as stock, or divided and held partly in the one way and
partly in the other, and formed on the principal of having for its members the
holders of those shares or that stock, and no other persons.
(2) Such a
company, when registered with limited liability under this Act, shall be deemed
to be a company limited by shares.”
20. It
is, thus, clear that for registration under Part IX, it must be a company not registered
under the Companies Act, or any of the earlier Companies Acts. The definition
of “company” under section 3 of the Companies Act expressly provides that the
definition will apply, where the context so requires, to a company formed or
registered under the Companies Act or an existing company meaning thereby a
company formed or registered under the previous Companies Acts. Respondent
No.11 is a joint stock company within the meaning of section 566 which on a
plain reading of the section requires that it has a permanent paid up or
nominal share capital of fixed amount; that capital is divided into shares of
fixed amount; and it is formed on the principle of having formed for its
members and holders of those shares and no other persons. In our view, respondent
No.10 satisfied all the above conditions and accordingly is a joint stock
company within the meaning of section 566, on the date of application to the
Registrar of Companies for the purpose of incorporation under Part IX. From a
plain reading of sections 565 and 566 it is clear that the expression “company”
in Part IX is used in the sense of a group, assembly or association of persons
which has been incorporated under the Act of Parliament or otherwise duly
constituted according to law and consisting of seven or more members. The word
‘company’ occurring in section 566 is not a company registered under the
Companies Act. In our view, it may include within its purview a co-operative
society registered under the Societies Act or Multi-State Act. The judgment of
the Andhra Pradesh High Court in Vali Pattabhirama Rao v. Sri Ramanuja Ginning
& Rice Factory (P.) Ltd. [1986] 60 Comp. Cas. 568, relied upon by Mr.
Chagla while dealing with somewhat a similar situation held that the word
“company” used in section 565 of the Companies Act, corresponding to section
263 of the Indian Companies Act, 1913, includes within its purview a
partnership. Thus, it was held that the word “company” in this context could
denote a partnership firm. A partnership firm could thus be registered under
Part IX of the Companies Act and once it was so registered, there could be
statutory vesting of title of the property of the firm in the newly
incorporated company :
“...The
question is whether the property of the said firm had vested in the first
defendant-company when the firm was registered under the provisions of the
Indian Companies Act, 1913. For that it is necessary to notice the terms of
section 263 of the Indian Companies Act, 1913, that corresponds to section 575
of the present Companies Act, 1956. Section 263 reads as follows :
‘All property,
movable and immovable, including all interests and rights in, to and out of
property, movable and immovable, and including obligations and actionable
claims as may belong to or be vested in a company at the date of its
registration in pursuance of this part, shall, on registration, pass to and
vest in the company as incorporated under this Act for all the estate and
interest of the company therein.’
The word
‘company’ occurring in section 263 is not a company registered under the Act.
It is used in the sense of group, assembly or association of persons. In fact,
throughout the Act the word ‘company’ was used in several sections in the
general sense of association of persons. In fact, section 11 of the present
Companies Act (section 4 of the previous Act) itself which enacted the
prohibition of association exceeding certain members for carrying on trade
starts with saying that no company or association or partnership consisting of
more than ten members shall be formed. Section 253 of the previous Act
corresponds to section 565 of the present Act. Section 565(1)(b) of the present
Act corresponds to section 253(1)(ii) of the 1913 Act, which permits any
company otherwise duly constituted according to law consisting of 7 or more
members to be registered as a company. A partnership must be one such. This is
made clear by the provisions of section 255 of the 1913 Act (present Act
section 567) and section 256 of the 1913 Act (present Act section 568)
whereunder a deed of partnership has to be filed before the Registrar before
seeking the registration. Hence, a partnership which was treated as a company
for the purposes of the Companies Act can be registered under Part 8 of the
previous Act (Part 9 of the present Act) and the vesting is provided by section
263 of the 1913 Act (section 575 of the present Act). The provisions is
mandatory and there will be statutory vesting in the corporation so
incorporated under the provisions of the Companies Act. The Registrar is bound
to give a certificate of registration under section 262 (present section 574)
which is a conclusive proof of incorporations, (vide section 35 of the present
Act that corresponds to section 24 of the previous Act). Hence, it is clear that
no conveyance is necessary when the Partnership is converted and
registered as a company....” (p.579)
21. Section
567 of the Companies Act provides that there should be delivered to the
Registrar the documents mentioned therein as a condition of registration. As
recorded earlier we are satisfied that this requirement was also satisfied as
respondent No.10 had in February, 1995, itself submitted to the Registrar of
Companies. Form Nos. 37, 40 and 41 of the Companies (Central Government’s)
General Rules and Forms, 1956, along with the resolution passed at the special
general meeting held on 28-1-1995. We are satisfied that respondent No. 10
complied with all conditions as contemplated under Part IX of the Companies
Act.
22. It
is true that there is no express enabling provision under the Multi-State Act
to allow conversion of co-operative bank into a banking company under Part IX
of the Companies Act. However, it cannot be ignored that there is no express
provision prohibiting such conversion if all the requirements contemplated
under Part IX of the Companies Act are complied with. Section 575 of the
Companies Act provides that all property, movable and immovable, including
actionable claims, belonging to or vested in a company on the date of its
registration in pursuance of Part IX, shall, on such registration, pass to and
vest in the company as incorporated under this Act for all the estate and
interest of the company therein. In view thereof, upon incorporation of
respondent No.11 as a company under the Companies Act, all property, movable
and immovable including actionable claims belonging to or vested in respondent
No. 10-bank at the date of registration passed to and vested in respondent No.
11. By virtue of sections 576 and 577 the existing liabilities of respondent
No. 10 were also expressly saved and all the legal proceedings taken by or
against it have continued by and against respondent No.11.
23. Moreover,
the position of law is very clear that once a company is born, the only method
to get it extinguished is not by assailing its incorporation, since the
certificate of incorporation is conclusive, but by resorting to the provisions
of the Companies Act which provide for winding up of companies. The petitioner
cannot, therefore, be said to have no remedy.
24. The
next question that arises for our consideration is as to whether the existence
of respondent No. 10 society continued after its conversion as banking company
under the provisions of the Companies Act. In other words, when respondent No.
11 banking company came into existence whether registration of respondent No.
10 under the Societies Act stands extirpated or determined. For determination
of this issue, we may have to make reference to section 17 of the Multi-State
Act. Sub-section (1) of section 17
provides that where the whole of the assets and liabilities of a multi-State
co-operative society are transferred to another multi-State co-operative
society or to a co-operative society in accordance with the provisions of
section 14, the registration of the first mentioned multi-State co-operative
society stands cancelled and the society shall be deemed to have been dissolved
and ceased to exist as a corporate body. The plain intendment of the
Multi-State Act is that when the whole of the assets or liabilities of
multi-State co-operative societies are transferred to another entity, the
registration of that the multi-State society stands cancelled and the society
shall be deemed to have been ipso facto dissolved and shall cease to exist as
corporate body. This principle can be taken recourse to, to hold that the
existence of respondent No. 10 society stood dissolved on its conversion under
Part IX of the Companies Act as joint stock banking company. This also finds support
from the letter dated 7-9-1995, issued by the Union of India, Ministry of
Agriculture (Department of Agriculture and Cooperation) addressed to respondent
No. 11 whereby it was informed that consequent upon the registration of
respondent No.11 as a joint stock banking company by the name of the
Development Credit Bank, the Development Co-operative Bank (respondent No. 10)
has ceased to exist as a society under the Multi-State Act, from the date of
registration under the Companies Act. It is thus clear that the authorities
under the provisions of the Multi-State Act have treated the registration of
respondent No. 10-bank as cancelled and it ceased to exist as society under the
Multi-State Act. Respondent Nos. 10 and 11 cannot be said to have committed any
illegality. Even if it be assumed that there was some irregularity in
conversion of respondent No. 10 to respondent No.11, it is not a suitable case
for interference under extraordinary jurisdiction in larger public interest, in
view of remarkable growth of respondent No. 11 during all these years and the
interest of the shareholders as would be seen from our discussion a little
later. We have, therefore, no hesitation in rejecting the submission of the
petitioner that respondent No.10 is still in existence inasmuch as it has not
been deregistered or wound up.
25. Coming
now to the last submission of Mr. Chagla, learned senior counsel for respondent
No.11 that certain equities have already been created in favour of third
parties after conversion and it is not proper, just or equitable to grant any
reliefs to the petitioner. He further submitted that granting the reliefs
prayed for by the petitioner would cause tremendous injustice and hardship to
several persons including employees and shareholders of the respondent-bank.
Mr. Chagla in support thereof placed reliance on the judgment of the Apex Court
in the case of State of Maharashtra v. Prabhu [1994] 2 SCC 481. On the other
hand, the petitioner submitted that the writ petition be allowed and the entire
assets and liabilities of respondent No. 11 be once again transferred to
respondent No.10 and it may be allowed to function as multi-State society.
26. The
record shows that the members/shareholders of respondent No. 10-bank passed the
resolution at a special general meeting on 28-1-1995, which decided to
implement the scheme of conversion. The scheme, inter alia, provided
endorsement of shares of respondent No.10-bank as shares of respondent
No.11-bank, each shareholder was to be allotted 200 shares of respondent No.11
and block shares of respondent No. 11 were to be issued to the International
Finance Corporation, an arm of the World Bank, Aga Khan Fund for Economic
Development and Platinum Jubilee Investment Company. Accordingly, by letter
dated 16-8-1995, respondent No. 11-bank called upon its shareholders to
subscribe to the said shares in accordance with the scheme. More than 12,000
shareholders of the respondent-bank have already subscribed to the shares to be
allotted to them. Platinum Jubilee Investment Company has on 22-2-1995,
deposited as application money an amount of Rs. 6 crores with respondent No.
11-bank and also made an application to the Central Government under section
372 of the Companies Act for being allotted shares of respondent No. 11-bank
and the permission was subsequently granted by the Government of India by order
dated 27-10-1995. Consequent to this permission, shares have already been
allotted to the Plati-num Jubilee Investment Company. Similarly, Aga Khan Fund
for Economic Development has paid an aggregate amount of Rs. 8,61,54,000
towards 86,15,400 shares allotted to them. Moreover, the progress of respondent
No.11-bank, since conversion, has been remarkable 1 as indicated below :
“(a) The deposits have grown 6.34
times, i.e.,from Rs. 582.67 crores on 31-5-1995, to Rs. 3,691.76 crores till
31-3-2002.
(b) The advances have grown
6.49 times i.e., from Rs. 348 crores on 31-5-1995, to Rs. 2,259.25 crores till
31-3-2002.
(c) There has been a
significant increase in the number of branches. There were 31 branches in May,
1995, as of 31-3-2002, there are 55 branches and 3 extension counters, both in
metropolitan and rural areas.
(d) There has been an increase
in the capital from Rs. 7.33 crores to Rs. 22.97 crores i.e., an increase of
3.13 times.
(e) There has been an increase
in the working capital from Rs. 791 crores to Rs. 4.189 crores i.e., an
increase of 5.3 times.
(f) There has been an increase
in the distribution of dividend from 155 prior to conversion to 30 per cent
each year subsequent to conversion till 31-3-2001.
(g) The book value per share,
since 31-5-1995, has increased from Rs. 86.29 per share to Rs. 131.85 per
share.
(h) Since the conversion the
respondent-bank has been issued a licence as an authorised dealer in foreign
exchange by the Reserve Bank of India and has in fact commenced operations in
the same.”
All the above developments undoubtedly indicate that respondent No. 11-bank has made remarkable growth and progress after its conversion in 1995 and certain equities have also been created in favour of third parties after conversion and in view thereof we are satisfied that it would not be proper, just and equitable to grant any reliefs to the petitioner. By reversing the arms of clock, time cannot be reversed. We are of the considered view that allowing of the writ petition would definitely result in greater harm to the shareholders, borrowers, employees, etc. of respondent No. 11 and we, therefore, refrain from exercising our extraordinary jurisdiction under article 226.
In the result, this writ petition is dismissed. Rule stands discharged. No order as to costs.
(2) Writ Petition No.2229 of 1996 :
27. The
petitioner, Shri Salim Akbarali Nanji, and four others have challenged the
legality, validity and propriety of the judgment and order dated 16-10-1996,
passed by the Co-operative Appellate Court, Mumbai, in Appeal No.34 of 1996.
The petitioners have also challenged the legality and propriety of the
certificate of incorporation issued by the Registrar of Companies (respondent
No.5) in favour of the Development Credit Bank Ltd. (respondent No.9) and
further the letter of “in principle” approval to the Development Co-operative
Bank Ltd. (respondent No.8) for its conversion into banking company. The
petitioners have also challenged the legality and validity of the notification
dated 1-6-1995, granted by the Reserve Bank of India (respondent No.3) and the
letter dated 26-6-1995, issued by respondent No.9. Except the first prayer
whereby the judgment and order dated 16-10-1996, has been challenged in the
present writ petition, all other prayers were also made in the earlier writ
petition (Writ Petition No. 1443 of 1995).
28. Appeal
No. 34 of 1996 filed before the Co-operative Appellate Court, along with Appeal
No.33 of 1996 and Appeal No. 39 of 1996, was directed against common judgment
and order passed by the learned judge. Co-operative Court No.1, Mumbai, in
Dispute Bearing No. CC-1/95 of 1995 and in CC-1/139 of 1995 dated 11-1-1996, by
which the learned judge had allowed both the disputes and granted reliefs of
declaration and injunction in terms of prayers made in the dispute. The issues
framed by the appellate court while deciding the appeal read, thus :
“Issues.—
(1) Whether the opponent bank
proves that notice of the special general meeting dated 28-1-1995, were served
to all the members ?
(2) Whether the opponent bank
proves that the resolution of conversion was passed in the meeting dated
28-1-1995, validly ?
(3) Whether the disputants prove
that there was insufficient notice, hence special general meeting dated
28-1-1995, is illegal.”
29. Looking to
the nature of the reliefs sought by the petitioners in this writ petition and
the finding of facts recorded by the courts below, we do not require to examine
the merits of the case in view of the detailed reasons recorded in the earlier
writ petition, viz., Writ Petition No. 1443 of 1995 inasmuch as it covers the
dispute raised in this petition.
30. In view thereof, the present
writ petition is dismissed. Rule stands dis-charged. No order as to costs.
(3) Writ Petition No. 2492 of 2000 :
The petitioner, Salim Akbarali Nanji, has
filed this writ petition challenging the legality, propriety and validity of
the resolution No.10-D in the notice dated 12-8-2000, passed at the annual
general meeting called on 30-9-2000, in respect of dematerialisation of shares
and securities of respondent No.11-credit bank with the depository company
under the Depositories Act, 1996. It is further prayed by the petitioner that
the resolution at item No. 9 adopted in the said annual general meeting for
increase in authorised share capital from Rs. 25 crores to Rs. 50 crores of the
Development Credit Bank Ltd. (respondent No. 11). Without issuing rule this
writ petition was directed to be heard along with Writ Petition Nos. 1443 of
1995, 2229 of 1995, 2044 of 1995 and 786 of 1996 by order dated 2-2-2001.
Looking to the reliefs sought by the petitioner in the instant writ petition
and bearing in view the judgment in Writ Petition No. 1443 of 1995, we are of
the opinion that we need not deal with the merits of the present writ petition.
As a matter of fact, for the reasons recorded in our judgment in Writ Petition
No. 1443 of 1995 delivered today, this writ petition is rendered infructuous
and in view thereof it is dismissed in limine.
(4) Writ Petition No. 786 of 1996 :
The petitioner, Shri Salim Akbarali Nanji, has
filed this writ petition seeking direction to respondent Nos. 3, 4 and 5 and
also its all office bearers to convene an annual general body meeting for the
co-operative year ended on 31-3-1995, forthwith and further to furnish to its
members the annual accounts and report for the financial year from 1-4-1994 to
31-3-1995. The petitioner has also sought direction for declaration of dividend
for the co-operative year 1994-95 and further to declare and conduct the
election of the president and the board of directors of the bank under the
Co-operative Societies Act/Rules. The petitioner has also prayed for direction
to take back the assets and liabilities of respondent No.1 from respondent No.
2 and function as co-operative bank. Further, prayer is not to grant a single
advance for over Rs. 2.5 crores by respondent No.2 as the maximum limit in
total that can be granted under the Multi-State Act, and lastly the petitioner
has prayed for injunction restraining respondent Nos. 2, 3 and 6 from taking
any action in pursuance of issuance of public issue or equity shares with or
without premium or issuing banking company bonus shares to the shareholders
under the Companies Act and in furtherance of listing of shares of new company
in the share market.
Rule has not been issued in this writ petition
also. The petitioner has prayed for diverse reliefs in the present writ petition
and all of them have either become infructuous or have been rendered
ineffective in view of the reasoning recorded in Writ Petition No. 1443 of
1995.
In view thereof, this writ
petition is also dismissed in limine.